To clarify, the hedge fund LTCM in "When Genius Failed", collapsed not because it relied on arbitrage 'pricing formulae', rather because it failed to properly execute arbitrage trades.
LTCM in being overly leveraged, relied on other market participants to maintain short term price alignment, which meant it was not arbitrage. Salomon's reduced its role as market-maker, maintaining short term price alignment, which increased short term price anomalies, and thus increased LTCM's vulnerability. The Asian financial crisis increased the frequency and extent of those pricing anomalies, and the subsequent Russian Default crisis did the same. Margin calls were made on LTCM that it couldn't cover, forcing them to close out of their positions at very unprofitable times of the trade strategy.
So I don't think "pseudo-science" is a great description for what those B-School profs are teaching. Rather the pricing formulae are just the beginnings of the financial theory you need to run arbitrage strategies, but they are not sufficient. You need to augment them with a broader picture of market dynamics and capital management, just like you'd need to learn about financial law, financial market technology, and a bunch of other stuff to run a successful market-making desk.